Stocks Predicted to Continue Falling
Don’t expect free falling stock prices to hit bottom anytime soon. The S&P 500 flirted with a bear market last week. It also recorded more than $1 trillion in losses. And now a majority of 1,000 industry insiders polled predict the S&P 500 to drop even further. Their economic fears are growing along with the Federal Reserve’s interest rates.
On average, they forecast the S&P 500 to bottom around 3,500. That represents a decline of at least 10% from the Friday close of 3,901. And a brutal 27% drop from the January peak. A handful see a historic rout in motion to 2,240 – revisiting the pandemic lows.1
Several reasons are attributed to the rout. First is the Fed’s hawkish ‘stop inflation at all costs’ posture. In addition, the chaos in supply chains and intensifying threats to the business cycle are all corroding corporate profits. Meanwhile, equity valuations keep sinking.
When asked what it would take for the Fed to ease up on rate hikes, almost half of the respondents said the S&P had to fall 30% from its peak. The other half said unemployment would have to rise up to 6%, from 3.6% currently.
Goldman Sachs thinks the market is actual close to hitting bottom. In the latest weekly note to investor clients, they saw the S&P 500 finishing the year at 4,300. They lowered their long-held 4,700 year-end forecast. The bank said their original prediction was untenable with inflation soaring, the Fed tightening and stagflation fears mounting.
Bank of America, however, has a bleaker outlook. BofA Securities’ latest report called 3,600 as the new bull case. If that 3,600 were to come to pass, it would mean a further 7.7% drop in the S&P 500. That would just about wipe out all the gains accrued since Joe Biden won the presidential election in November 2020.2
Going by history, investors could be in for at least five more months of pain if stocks enter a bear market. Looking back over 140 years, market downturns of this magnitude tend to last 289 days. They wipe out, on average, 37.3% of value. Such a free-fall would send the S&P 500 to 3,000 and the Nasdaq to 10,000.3
Stock prices are facing a lot of downward pressures. Corporate profits are on the wane. Inflation is showing little sign of stopping. And the housing and labor markets are running out of steam. Corporate defaults are also increasing as interest rates rise.
The survey pessimism is reflected in the actions of money managers. They are fearful of the economy’s direction. As well as the uncertainty caused by the lockdowns in China and the prolonged Russia-Ukraine conflict. Capital is fleeing the markets. Once a reliable option, bonds are being overlooked as they are performing at record low levels. Instead, money is heading to safe haven assets like gold. Precious metals are positioned to weather the bear market and the impending recession that may follow it. If you are interested in protecting the value of your retirement accounts, contact AHG to learn more about how a Gold IRA may be right for you.